Real estate received as a gift and then resold on the Vaud Riviera: how the reference value is calculated for the capital gains tax

The Vaud Riviera, from Vevey to Montreux and including Corseaux, Chardonne, and La Tour-de-Peilz, is one of the strongest real estate markets in the canton of Vaud. Properties acquired thirty or forty years ago for modest sums are now worth several times their original purchase price. When such a property is transferred as a gift to a child or a close relative and then resold a few years later, the question of capital gains taxation becomes central. And it is far from simple.

Between the market value at the time of the gift, the donor's original acquisition price, the specific rules of Vaud tax law, and the holding period to be used, the various parameters intersect in ways that can sometimes be confusing. Here is a comprehensive breakdown to help you navigate this situation with the right reference points.

The real estate capital gains tax in the canton of Vaud: a recap of the framework

In Switzerland, the taxation of gains realized upon the sale of a property falls under cantonal law. The canton of Vaud applies a special real estate capital gains tax, separate from income tax, which applies to any person who realizes a profit by selling a property that forms part of their private assets. Under the Vaud cantonal tax law (LI), this tax is calculated on the difference between the sale proceeds and the acquisition price increased by capital expenditures, meaning investments that have created added value in the property.

The applicable rate varies depending on the holding period: the longer you have held the property, the lower the rate. The Vaud rate schedule is degressive, ranging from a high rate for a resale in the first year to a minimum rate after a large number of years of ownership. Conversely, a quick resale after acquisition triggers an increased rate. This mechanism is designed to discourage short-term speculation while reducing the tax burden over the long term. One Vaud-specific feature is worth highlighting: years of personal occupation of the property, as proven by the taxpayer, count double when calculating the holding period. It is precisely this holding period parameter that makes the situation of the gift recipient particularly important to understand.

The reference value used in a gift: the Vaud principle

When a property is transferred by gift between living persons, the canton of Vaud defers the real estate capital gains tax: no tax is collected at the time of the transfer. The recipient essentially steps into the donor's tax position. Specifically, for the purpose of calculating the real estate capital gains tax upon a subsequent resale, it is in principle the acquisition price from the previous taxable transfer, meaning the donor's original purchase price, that serves as the reference, not the market value at the time of the gift. This principle is fundamental: the latent gain accumulated since the original purchase does not escape taxation; it is simply deferred until the actual resale.

Consider an example on the Vaud Riviera: a house purchased in Montreux in the 1990s and then transferred as a gift to a child in 2015. If that child later resells the property, the taxable gain will in principle be calculated with reference to the original purchase price from the 1990s, not the value of the property in 2015. The appreciation accumulated over the entire period, sometimes substantial in this sought-after region, will therefore be fully taken into account.

There is, however, an important option provided under Vaud law. For a property acquired some years ago, the taxpayer may choose to use the official tax assessment of the property in force a few years before the sale as the acquisition price, if this is more favorable. This is an option, not an obligation: if the historical purchase price, even if from long ago, can be documented and proves more advantageous, it should be used instead. Furthermore, in the canton of Vaud, gifts in direct line (parents to children, grandparents to grandchildren) as well as between spouses and registered partners are exempt from gift tax, which makes lifetime transfers particularly attractive from this standpoint.

The holding period: a significant factor for the tax rate

The holding period taken into account by the Vaud tax authorities does not begin on the date of the gift, but goes back in principle to the date of the donor's original acquisition, meaning the previous transfer that was subject to tax. This is good news for the gift recipient who resells quickly after receiving the property: they benefit from the entire period elapsed since the original purchase, which can significantly lower the applicable rate. On the Vaud Riviera, where properties are sometimes held for several decades, this can represent a very substantial rate reduction, down to the minimum rate on the schedule.

Be careful, however: this benefit on the rate should not overshadow the importance of the calculation base. A very large gain, even if taxed at a reduced rate thanks to a long holding period, can represent a heavy tax burden. This is precisely the situation facing many heirs or gift recipients on the Vaud Riviera, where property appreciation since the 1980s and 1990s has been particularly pronounced.

Deductible capital expenditures: legally reducing the taxable base

Whether you are the gift recipient or you are tracing back to the original donor, investments made on the property that have created lasting added value can in principle be deducted from the gain. Vaud law recognizes as deductible capital expenditures those expenses, documented by the taxpayer, that are inseparably linked to the acquisition or the sale, or that contribute to increasing the value of the property: major renovation work, conversion, expansion, and durable fixed equipment. Routine maintenance costs, on the other hand, are not deductible from the capital gain, as they may already have been deducted from taxable income each year. It should also be noted that if the official tax assessment is used as the acquisition price, only capital expenditures made after that assessment can in principle be deducted.

The distinction between maintenance and value-added improvements is often a source of discussion with the Vaud tax authorities. A simple like-for-like replacement may be considered maintenance, while a substantial energy efficiency improvement will more likely be treated as a value-creating investment. It is therefore essential to retain all invoices, quotes, and supporting documents from the start of ownership of the property, including those dating back to the donor's time if you can obtain them. Without supporting documentation, no deduction is in principle allowed.

Also deductible are the acquisition costs at the time of the original purchase, such as transfer taxes and notary fees, as well as the selling costs at the time of the sale, including the brokerage commission and deed fees. On the Vaud Riviera, where transaction costs are high in absolute terms due to market prices, these items are worth carefully documenting.

Gift versus inheritance: a tax difference not to be overlooked

A question that comes up frequently is: is it better to transfer a property during one's lifetime as a gift, or to wait for the inheritance? From the standpoint of the real estate capital gains tax, the logic is similar in both cases: taxation is deferred at the time of the transfer, and the recipient inherits in principle the acquisition price from the previous taxable transfer, while also retaining the benefit of the previous owner's holding period. However, there are practical differences that should not be overlooked.

In the context of an inheritance, the property is valued at its market value at the time of death for the purposes of the estate division, but the reference price for the capital gains tax remains in principle that of the deceased's original acquisition. The distinction between gift and inheritance is therefore not decisive for this tax alone, but it matters for other aspects: inheritance or gift tax depending on the degree of kinship, division among heirs, and timing of the transfer. A comprehensive estate plan, developed with a notary and a tax advisor, remains essential to optimize the overall outcome.

The role of the assessment at the time of the gift: fiscal value versus market value

At the time of a gift or inheritance, the property is assessed by the Vaud tax authorities. The inheritance and gift tax is in principle levied on a fraction of the official tax assessment of the property. This fiscal value generally does not coincide with the actual market value, especially on the Vaud Riviera where transaction prices often significantly exceed official tax assessments. Vaud law also allows, following a gift or inheritance, for either party or the authority itself to request a revision of the official tax assessment.

It is important to clearly distinguish this value used for gift tax purposes from the calculation base for the real estate capital gains tax upon a subsequent resale. Many gift recipients mistakenly believe that the value stated in the deed of gift or communicated by the tax authorities at that time automatically constitutes their "cost basis" for capital gains purposes. In reality, it is in principle the acquisition price from the previous taxable transfer that applies, with the taxpayer having the option, for older properties, to use an earlier official tax assessment if it is more favorable. In case of doubt, it is advisable to refer to the current Vaud legislation and, if necessary, to request a preliminary ruling from the cantonal tax administration.

Planning ahead before selling: best practices on the Vaud Riviera

Before listing a property received as a gift on the Vaud Riviera for sale, several steps are essential. The first is to reconstruct the complete history of the property: the date and price of acquisition by the donor, all invoices for work carried out since the beginning, and the notary fees and transfer taxes paid at the time of the original purchase. If the donor is still alive, this is the ideal time to gather these documents together. Otherwise, notarial archives and mortgage statements can help reconstruct the file.

The second step is to have a professional appraisal of the property carried out before the sale, not only to set the right market price, but also to have a clear picture of the potential gain and therefore the foreseeable tax burden. On the Vaud Riviera, the gap between an old acquisition value and the current value can be very significant, making this simulation exercise particularly valuable.

Finally, it may be worth consulting a tax specialist or a notary to assess whether an immediate sale is the best option, or whether other strategies, such as retaining the property and renting it out, are worth considering. At Homewell, we regularly support property owners through this broader reflection, in coordination with their legal and tax advisors, so that the decision to sell is made with a full understanding of what is at stake.